OKEx Research Institute: What is the most direct reason for the 10% plunge in Bitcoin?

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OKEx analysts believe that the most direct reason for the 10% plunge in Bitcoin today is that the Biden administration is preparing to increase capital gains taxes. According to U.S. tax regulations: American investors who hold Bitcoin will be required to pay capital gains taxes if they choose to sell it after holding it for more than a year. According to Bloomberg, the United States plans to nearly double the capital gains tax to 39.6%, plus the existing investment income surcharge, and the final investment tax rate is expected to reach about 43%.

The main drivers of this round of Bitcoin bull market are institutional investors in Europe and the United States. If we count from October last year when European and American institutional investors began to buy a large number of Bitcoins, they have held them for more than 6 months. The current heavy taxation of capital gains by the US government will have a significant tax distortion effect: for example, in the past, when we bought Bitcoin, it meant that we were willing to take the risk of losing 50% of the principal to obtain 80% of the investment income; after the taxation, we have to bear the risk of losing 50%, but can only get 40% of the original investment income; then many institutional investors will choose to sell cryptocurrencies to avoid the heavy taxes in the future.

Therefore, in order to avoid possible heavy capital gains taxes in the future, we have seen a significant plunge in both U.S. stocks and cryptocurrencies.

Of course, the recent plunge in the cryptocurrency market is closely related to the regulation of major countries around the world. At present, officials of the People's Bank of China have already spoken out to take new regulations on cryptocurrencies. According to foreign media reports, the US Treasury Department is also preparing to accuse several financial institutions of using cryptocurrencies for money laundering. Judging from the current regulatory situation, it is possible that regulatory policies will be officially introduced in the next few months. Some investors are also selling their encrypted digital currencies to avoid regulatory risks.